Enron was established in 1985 after InterNorth Incorporated came together with Houston Natural Gas Company in a merger (Prentice, 417). After the merger, Kenneth Lay took responsibility as the CEO and hired Jeffrey Skilling, who later became the COO and CEO. Andrew Fastow was also employed, and he became the CFO.
The leadership style that was relied upon in the company was a kind of charismatic leadership (Tourish & Naheed, 456). Similar to how they presented themselves to the press, the leaders at Enron often engaged in different kinds of self-promotion. Both Kenneth Lay and Jeffrey Skilling were both equally able to promote a charismatic self-image. They presented strength and often intimidated junior employees in the organization. Both Lay and Skilling often aimed to illustrate a powerful image with every opportunity. It was an effort used by leaders in the organization to ensure that they demonstrated an alluring spectacle about them. This allowed them to convince people to join their cause to be far much better than just being members of the organization and working for a living (Tourish & Naheed, 456). The leaders developed a better life for themselves. They credited the organization to ensure that everyone worked and bettered their ability to join the executives to one day be part of the privilege. This was to be possible if they accepted the entire vision and system of value that was developed by the organization leaders and adopted their behaviors while suppressing their concerns. This was used as a way to ensure conformity to the vision of the charismatic leadership of the organizations and ensuring support was demonstrated to the direction the company aimed to achieve (Tourish & Naheed, 456).
The source of power that was used for Enron was legitimate power. This is a source of power that relies on a person's ability to influence people due to the position they hold in the organization (Lunenburg, 7). This is a formal authority bestowed upon the individual by the organization. The people that have legitimate power can instruct people to do things that are within the scope of their legitimacy as leaders. Enron leaders often exerted their influence on the employees due to their legitimacy (Lunenburg, 8). They could instruct, hire, and fire employees depending on whether they did their bidding. This was a strong field that pushed people to follow up on the things that their leaders told them for fear of repercussions.
Charisma was the main factor that the two leaders Lay and Skilling used to guide the employees to follow what was required of them (Tourish & Naheed, 458). They used this power to project an alluring power in every opportunity that they had. This power was well designed and ensured that people were convinced to join in a more significant cause that is different from working and just being part of the organization. They dressed well and lived extraordinary lives, and this convinced their followers to work hard to be able to look like they did (Tourish & Naheed, 459).
The employees at Enron were often coerced to engage in unethical behavior, and this was from the employment and the selection process. The employees were inducted into a high-performance working environment, and this initiated the conversion of employees. They were guided into having increased motivation for perseverance (Green, 553). Upon hiring, the employees were exposed to an environment that demanded a lot from them, and this ensured that they displayed improved levels of inordinate commitment. Further, employees were made to believe that being a member of Enron represented a certain kind of privilege, and it also ensured a different type of privilege and ensured high amounts of obligations. These were reinforced with different kinds of love bombings, they were well rewarded, and they were often informed that they were the best employees in the organization. Additionally, the companies presented the employees with credit cards, and they were recipients of several benefits, all of which were dependent on the high performance. They did the bidding of the leaders in the organization following these rewards (Green, 553).
There was a clear distinction between punishment and affirmation at Enron. Whistleblowers and potential whistleblowers were treated with a lot of contempt. They were often branded as losers, and they could even be fired at any time if the company lawyers were able to find a reason for laying them off (Sims & Johannes, 246). The company had developed, and this ensured that they could erode employee confidence. Inconsistencies and ambiguities were not discussable at Enron. No forums allowed communication about these concerns, and dissent was not tolerated in any term (Sims & Johannes, 247). Therefore, anyone who attempted to discuss the practices in accounting would either lose a bonus, reassigned, or fired if there were issues that would implicate them.
The management, however, had many bonuses. Different factors often determined the bonus payments and compensation that the management team received, and these did not differ from the programs designed by other organizations (Sims & Johannes, 248). They were based on the performance of the individual managers in their organizations. The sums of benefits were determined mostly by what the company earned (Sims & Johannes, 248).
Employees were the most affected by the lapses in the control and leadership at Enron. Whenever Enron faced difficulties in the workplace, they set up issues that ensured destruction in internal cohesion and morale of employees. Leaders often devised methods that provided that the employees that often did not carry the weight of the organization were set aside. Enron developed a situation where the workers were not able to bring out their thoughts and to probe their unethical practices in business (Sims & Johannes, 249). The system developed ensured that blind loyalty was rewarded, and honesty and dissent were often punished.
The control system used at Enron was both numbers and people-oriented. Every week, there were meetings held in the company, and every business unit leader was often at the conference, where they were grilled (Bryce, 111). Usually, these meetings were held, line managers were required to have strategies, numbers, and plans regarding the line and the entire organization. The leaders often made comparisons with previous information (Bryce 112). The bottom line of the organization was the main goals of the organizational meetings, and this means that strategies to improve the bottom-line were always welcome only if there were plans and supporting numbers. This was used to evaluate the company's performance, the managers assessed every line, and the entire employees of the line would be evaluated in the same way.
Kinder was responsible for establishing controls for the organization. Kinder joined the executive team of the organization in 1986, and he went on to guide the organization and the cost reduction of the organization and to ensure that there was an improvement of the reduced cash and substantial debt situation. Kinder understood the organization and his job, and he assured that the operations were begun. Kinder oversaw the activities of the organization and ensured that the employees at all levels were able to meet their targets (Bryce 20). Kinder often measured and paid attention to the performance of the organization in terms of finances. He ensured that the business leaders met their targets and their earnings. Kinder focused on his deliverable and provided that they were satisfied. This ensured that in his term as president, the revenues of the organizations rose from $5.3 billion to $13.38 billion (Bryce, 112).
The actual performance of the organization was measured through their revenues and stock prices, and this directly reflected the track records of the organization and the reported profits and income. This was a significant problem, and it demonstrated the values and the attitudes of the Wall Street analysts. Enron was often praised due to its revenue growth (Catanach & Shelley, 1057). This pushed the organizations to ensure that their streams of income were continually increasing. The use of earnings and revenue as the primary metrics of determining the performance of corporate is not a reliable method of analyzing the performance of companies as it may make different organizations succumb to the pressure, restate, and report profits in the most profitable way for them. This singularly focused revenue pursuit ensures that the organizations develop creative accounting practices when reporting the performance of the business (Catanach & Shelley, 1057).
Individual performance was directly aligned to the performance of the organization. The leaders of the organization often directed their frustrations to the employees, and this led to intense criticism among the employees as they were seen to be difficult, and this was more to the entire organization (Prentice). This ensured that the employees were made to go against each other. It was everyone's interest as to why an employee received poor ratings. This ensured that there was a strong incentive to succeed that people often looked for inadequate evaluations of other employees while finding better assessment for themselves. This ensured that there were shifting alliances and broken promises. Further, it ensured that there was an incentive to conformity, and people did not go against the organization. The bottom line of the organization was, however, the primary issue.
The problems that Enron had could be solved with a first-management course. This would be by using a proper decision-making model where the actual issues of the organizations would be determined, and the best approach would be found that would ensure that the solutions would be towards the improvement of the bottom-line and accountability as opposed to lying.
The best practices that would have ensured the problems were avoided would have been honesty and accountability. This would have assured that every member of the organization would provide accurate information that would then be used to make clear decisions in the organizations and prevent mistakes.
I would have ensured accountability and ensured that there were proper methods of management. Further, every employee would be held accountable for the bottom-line of the organization. Honest accounting practices would be set up, and these would ensure that the organization finds ways to solve its inadequacies instead of hiding them with inaccurate numbers.
Benston, George J. "Fair-value accounting: A cautionary tale from Enron." Journal of Accounting and Public Policy 25.4 (2006): 465-484.
Bryce, Robert, and Molly Ivins. Pipe dreams: Greed, ego, and the death of Enron. New York: Public Affairs, 2002.
Catanach Jr, Anthony H., and Shelley Rhoades-Catanach. "Enron: A financial reporting failure." Vill. L. Rev. 48 (2003): 1057.
Green, Stuart P. "Theft by coercion: Extortion, blackmail, and hard bargaining." Washburn Lj 44 (2004): 553.
Lunenburg, Fred C. "Power and leadership: An influence process." International journal of management, business, and administration 15.1 (2012): 1-9.
Prentice, Robert. "Enron: A brief behavioral autopsy." Am. Bus. LJ 40, (2002): 417.
Tourish, Dennis, and Naheed Vatcha. "Charismatic leadership and corporate cultism at Enron: The elimination of dissent, the promotion of conformity, and organizational collapse." Leadership 1.4 (2005): 455-480.
Sims, Ronald R., and Johannes Brinkmann. "Enron ethics (or: culture matters more than codes)." Journal of Business ethics 45.3 (2003): 243-256.
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